California seems to be in a perennial drought, but 2013 may have set a new standard. It was the driest year on record, going back 160 years. So far in 2014, geologists say the Sierra snowpack—a crucial source for state water—is only 20 percent of normal.

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California's worst drought in decades is forcing the state's cattle ranchers to downsize their herds because two years of poor rainfall have ravaged millions of acres of rangeland used to feed their cows and calves.

"We think there will be more than a third of the district laying fallow this year," said Mark Borba, a farmer in the San Joaquin Valley. Borba grows everything from almonds to tomatoes to lettuce, and he, like many of his neighbors, depends on groundwater plus an allotment from the federal government through the Sacramento Delta. So far, he said, it looks like his allotment this year will be "zero."

California has the nation's largest farm economy, worth $45 billion, according to the state farm bureau. Gov. Jerry Brown on Friday declared a drought state of emergency for California and directed state officials to "take all necessary actions to prepare for these drought conditions."

Now that there's an official declaration, water can be reallocated in favor of permanent crops at the expense of seasonal ones, according to the California Natural Resources Agency. That means Borba's nut trees will have more priority than his lettuce and tomatoes. Since most of the nation's salad bar is grown here, produce prices could rise. He's conserving cash.

"This year we had four John Deere tractors ordered, and they were in excess of $800,000," Borba said, standing on dusty ground. "When the bureau announced it was likely a zero water allocation for the year, I went to the dealer and said, 'Sorry, but I'm not going to be able to take them.'... If you can't predict where you're headed, you better kind of gather up your acorns and find out how to survive."

Why is California so dry? Meteorologists say there's a huge, stubborn high pressure system off the West Coast nearly 4 miles high and 2,000 miles long. It isn't budging.

For rancher Justin Greer, the dry spell means downsizing his cattle herd. "By this time of year, we normally have about 3 inches of good, green grass," he said of his Tulare County ranch. "We've just had zero rain."

Greer has been buying costlier hay, cutting into profits. Much like Texas two years ago, California ranchers are now reducing their herds and moving animals off the ranch more quickly.

(Read more: Grain mostly higher, livestock higher)

"Two years ago, we were shipping steer calves that weighed 650 (pounds). Last year we shipped calves that weighed 570. And if this keeps at this current rate, I would be surprised if we shipped calves that weighed 500," he said.

Lighter calves cost more to fatten up on feed lots for market, which could in turn drive already high beef prices higher. Consumers could switch to more chicken or pork.

"Beef isn't, and never has wanted to be, the low-cost alternative," Greer said. "We want to be the best protein alternative, but with everything, there is a breaking point."

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Severe drought is a contributing factor in the declining cattle count, which has sent wholesale beef prices up.

There is still time for rain this season, but none is in the forecast. "We don't just need a normal rainfall," Greer said. "We need above normal to get back to zero, we are so far behind."

Borba would like to drill a deeper well, but the cost is too high, and demand for drilling services is backed up for more than a year. "Everybody just keeps installing deeper, longer straws," he said. "The water quality is degrading. It's become saltier, and that's not good for any of our crops."